Sushi Money

Well the Dollar ain’t what it used to be… I’m visiting relatives in Germany for a quick trip, and find that my U.S. Dollars are close to a two-year low against the Euro.  Flew into Frankfurt and then a couple hours drive to southern Germany.  Beautiful weather this week, and the food and beer is wonderful.  I’m only here for a short time, and noticed my dollars don’t stretch quite as far as they used to.   If I was here for more than a week I would probably care… certainly a budget would limit what I might spend. But realistically, it is what it is, and I won’t limit my tourist spending by virtue of the exchange rate.  Of course I don’t plan any major purchases… I’ll just enjoy the visit and the food and friendship.  The local and international economy is cyclic of course… some cycles are longer than others.  On the micro-level, fluctuations in currency may not affect much (for me on a tourist trip), but certainly on the macro and international level there are longer term impacts and changes.  But for the food, wine and beer?  Ahh… disneyland for the culinary delights.  Prost!

Is it just me, or are the warnings and doom about the real estate market finally reaching a loud chorus of negative sentiment lately?  Stirring the national emotions has always been a chosen tactic of the media to enhance readership, but it appears the media wind is behind the back of those predicting calamity rather than examining key issues.  The debate centers on the question of whether the real-estate and mortgage markets, with great effect on the national economy, are going to crash or just continue to slide for a time.  What does ”crash” mean exactly?  Are property values going to crash steeply all at once, or will we see a slow drizzle of devaluation over time?  Will the economy go into recession, or worse a full-blown depression?   Some are predicting the worst case.  But I just don’t believe it.  Not yet.  Lots of real-estate “bubble regions” may have a lot more pain to go through before prices stabilize.  Other regions that barely knew the existence of a real-estate bubble may simply stagnate for several years or more.  I watched a pundit on one of the major networks today say that effectively, “this is the worst real estate devaluation since the Great Depression.”  I’m not sure I agree with that statement… but I don’t have the statistics to debate him yet.  No question the credit markets are tightening and the subprime lenders are in trouble.  But I’ll take a wait-and-see attitude on the economy this year.

Let’s look at some more media reports.  This recent article by AP in the Seattle Times, Coalition warns of “Mortgage Tsunami,” urges reforms reports that the National Community Reinvestment Coalition is warning of the growing mortgage default problem “affecting millions of Americans, particularly minorities.”  Reading the article we find that this “coalition” has been warning of the problem for years.  Now they are really pouring on the verbal equivalent of yelling from the treetops.  Are they right?  So far they have been, although it has been somewhat alarmist.  They have been on the right track with their concern over time and seeking more regulation and reform in much needed areas of mortgage origination.  Certainly foreclosures are increasing, but primarily in the subprime markets. 

This article from CNN discusses how the Mortgage crisis is overwhelming credit counselors.   The discussion centers on the subprime lending arena for lower income loan recipients.  But I simply can’t understand how someone can sign for the biggest loan in their life, with paperwork that spells out their loan terms, and later say they didn’t realize the interest rates would increase on an adjustable loan, or what that meant in terms of payments.  Are they loaning money to people who can’t read?  If there is outright deception and fraud, then the subprime lenders should be taken to the woodshed and made to pay for their crimes.  Reform and regulation should apply in areas where oversight is lacking on such a widespread scale. But I will also say that I’ve had four adjustable rate mortgages in the past 10 years in separate housing markets, and the loan terms are very clear.  Unfortunately people may see the information but not put two-and-two together to understand the long-term personal financial impact.  I’ve used an ARM very effectively for it’s intended short-term purpose, and refinanced when necessary later.  For a lower income family in a tighter credit market however, I can understand how they could find themselves pressed with few refinance options.  But mortgage rates today are still very low compared to recent decades… if you can’t afford a house at current fixed mortgage rates, then you probably can’t afford the house with any other type of loan.  I think that’s the heart of the issue… putting people into homes they simply could not afford, and should not have been buying.  “No kidding” I hear you say…  Well, down the road some people are going to get terrific deals as buyers and there are many perspectives on the issue.  Famed commodity investor Jim Rogers is also issuing warnings in a March 14th Reuters article by Elif Kaban titled “Top investor sees U.S. property crash.”  He is on the mark for many forecasts, but he’s also been very negative on various  markets for years… Seems like I only see him when the media circus looks for strong opinion in times of negative sentiment or emotion.

 I’ve always understood that what we believe to be true can become true, whether it is true at the time or not, and even whether we really want it to be true or not.  Mass psychological energy, the “herd mentality” or whatever you choose to call it can have tangible effects in society for the momentum of popular focus and thought.  The media plays an enormous role of course in swaying popular opinion.  I must say that I’m more concerned with the hysteria that media reports generate over time for consumers.  But if reform and necessary market recalibration also occurs through the slow march of time then that is normal.  But it is often through great calamity and pain for real people that change happens in the first place.

I think it’s worth remembering some key aspects of real estate:

1.  Did you purchase your home to live in, and plan to stay for many years?  If the answer is yes, then don’t worry about the doom and gloom in the mainstream media.  Take care of your family and finances, pay your mortgage and take care of your home.  All markets have cycles, and this one will change again in the future.  Tune out the noise and enjoy your home. 

2.  Are you thinking of selling or buying, because of job or family issues and the time is right?  Then do your homework and take a hard look at what you will sell it for, or buy it for.  Make sure it is a home you want to give up, or get into.  Be realistic about the selling price!  And as a buyer, don’t overpay for a house you “just have to have.”  Don’t buy more home than you can really afford…  Read and understand the impact of the loan terms that you are accepting!  That is what many people forgot in recent years.  And yes, get a fixed rate mortgage… rates are still quite low today by historical standards and you won’t get in over your head.  I paid on a mortgage for years at 8-9% and thought that was pretty good.  I also paid off a truck loan in the mid 1980’s at 12.5% interest.  Sounds ridiculous now, but it was pretty good at the time!

3.  Did you purchase an investment property to try and flip it and make money?  If the answer is yes, then you are probably moving as quickly as you can to sell that home, even taking a loss if your situation dictates.  Or you can choose to hold on to it… possibly for years.  Nothing wrong with that if you can afford it. I bought a home years ago that I lived in for only a short time.  I planned to sell it but found that I would have lost money after I moved. So I rented… then found that the market prices didn’t change for many more years and still I refused to sell it.  Stubbornly I rented out that home for years, often taking losses and wondering how I got myself into that mess, even refinancing three times.  There were some positive tax advantages over time that surprised me.  And eventually the market turned and I sold quickly for a nice profit.  Some say I was lucky.  Maybe so… but if I was lucky, then it took over 13 years to get there.  Looking back I’m glad I stuck it out and went through the experience. 

My view of the real-estate market is that we will go through a sustained period of level and falling real-estate values until the markets can adjust naturally through the local and national economic cycles.  Areas of high unemployment will be hit pretty hard for standard economic reasons.  So for me that means 3-4 years from now until we see positive trends as population and economic growth absorbs the fallout.  But I’m also an optimist… I believe both the U.S. national and global economy will be much stronger over the next decade.  Corrections during the process?  Absolutely, and maybe even dramatic.  Depression?  No.  Ben Stein has it right in his recent article The Long and Short of Down-Market Investing.  Of course he’s always been one of my heroes.  Some folks think his views are too simplistic.  But you know what?  America needs people, economists especially, who can put things in plain language and provide a little perspective.

Here’s a few more recent headlines on the mortgage and real-estate frenzy.  I’m sure there will be more to come.

• Fingers Pointed Over Mortgage Meltdown
• Subprime Shakeout Threatens Specialists
• Countrywide Financial… Foreclosures could rise 10%
• Mortgage Confusion Costing Homeowners

I would really like to hear your perspectives on this…  and real-life experience if possible.  Do you see a crash coming?  Is the tsunami here?  Or is it a slow drizzle of falling valuations for the next few years?

“How I Made My Fortune? It was really quite simple. I bought an apple for 5 cents, spent the evening polishing it, and sold it the next day for 10 cents. With this I bought two apples, spent the evening polishing them, and sold them for 20 cents. And so it went until I had amassed a dollar and sixty cents. It was then that my wifes father died and left us a million dollars.”

Author Unknown

Now wouldn’t that be nice!  An inheritance is certainly a gift, yet more frequently I am reading that many people are counting on an inheritance to support them in their later years.  While talking with an elderly person recently I thought it interesting that as much as we plan for our future, and attempt to secure our financial lives through estate planning, etc,  we really don’t know how much of our savings we may need during our last years.  Unless someone is extremely wealthy, the money set aside in savings and retirement accounts may be needed for assisted living, nursing care, medical costs…on and on until?  Maybe until it’s gone.  There are many people using various strategies to shed income and move assets in order to qualify for Medicaid.  But realistically, Medicaid is a program for the poor… and those who need it most.  Ethically there is a great debate about how individuals may shift money around to qualify in later years.  Suffice it to say, if we want to have a choice of the type and location of care during our “nursing home years” we may just need to ensure we can pay for it.  If a relative is counting on some type of inheritance, they may be surprised when ‘ole mom, dad or grandma lives another 20 years!  And you never really know what someone may decide to do with their money… it is, after all, theirs.  As for me, I don’t believe in counting on an inheritance, and if it ever did happen- I would consider it as many do… a loving gift from one who has moved on.   I think I’ll go polish another apple…

The 92nd Carnival of Personal Finance is hosted by Lazy Man and Money this week with a wonderful line-up of articles.   Some really interesting stuff includes ProBargainHunter’s look at what’s hot on eBay through the new eBay Pop! tool for trending the most popular items.  Great idea… and wouldn’t it be interesting to trend the price averages from month-to-month and year over year?  I know… lets call it the EPI for “eBay Price Index”…  then we can analyze and trend eBay inflation data…. well, they probably do that already somewhere.  Hey, maybe I can coin that term for posterity… has it been done yet?   I’m also a believer in long-term investing to which Fire Finance’s article on Investing- The Mistake of Timing the Market really drove the point home.  I enjoyed BluntMoney’s look at budgeting, or rather a Confession on not budgeting!  I wonder how many people really, truly use a budget?  For many it’s just a reference point… something to aim for.  Like Blunt Money, I use software and tracking tools primarily.  It’s a budget per se, but realistically I operate from a thorough knowledge of where I am at all times.  I may start a more accountable budget this year to see if it makes a difference on the savings end.  It was interesting to read that Online Savings Blog is concerned about moving their IRA’s to Vanguard.  Moving money and retirement accounts around can be intimidating, but I have to say Vanguard is the one place I’ve been most satisfied with over the years.  I think you’ll really be happy after you’ve completed the transfer.  I’ve moved and modified many accounts on Vanguard without a hitch, and it has always been flexible, reliable and staffed with helpful people.  Believe it or not though- I did catch an omission on Vanguard’s part one month a couple years ago.  They somehow forgot a monthly dividend reinvestment on one fund… I looked and looked, and finally called them.  They researched it within a day and said, “You’re right!” and corrected it asap.  So I check my accounts at least every quarter to make sure any dividends and reinvestments are credited properly.  Shows that you can’t, or shouldn’t, simply leave your finances on auto-pilot even with the best of companies… it’s your money, make sure it’s doing what it’s supposed to!  But with Vanguard’s low cost structure and helpful staff, I wouldn’t be anywhere else.  Finally, a shameless plug for Sushi Money’s article Get Ready to Sell That Home.  If you’re a prospective home-seller, do everything you can to stand out from the rest!

On the lighter side, or not, depending on how seriously you consider the fine art of making and eating sushi, Yahoo News is reporting that Japan will “certify real sushi” around the world.  Some have jokingly called this idea the beginning of the “sushi police” and wonder how Japan can effectively achieve this goal.  Perhaps to the purist it is a great idea…   There’s nothing wrong with a desire for achieving excellence in food preparation.  And in Japan the creation and presentation of all things sushi is indeed a deep tradition, with years of apprenticeship and a dedication to quality unmatched in many culinary endeavors.  If not taken to the extreme, then I see no harm in it.  The growth of Japanese dining and eating sushi is exploding around the world.  So if this helps foster excellence in Japanese food, then why not?  Realistically, I believe in “economic survival” in that restaurants with good food and presentation will survive, while those with poor food quality will eventually fade away.  Sushi is definitely something that is either wonderful, or awful.  If not prepared properly, “you know it when you see it.”  How many times have we eaten at an asian restaurant with sushi on the menu, but all that’s really there is some conglomeration of rice in a roll designed to imitate sushi?  In America we love asian food… most typically through Chinese restaurants or buffets.  Japanese restaurants are less well known except in larger metropolitan areas, as well as Thai, Vietnamese and others.  When you visit Japan, it can be surprising and almost overwhelming… yet refreshing, to see harmony and devotion to the homogenous nature of Japanese culture.  Food is no exception, and for the creation and enjoyment of sushi there are few places in the world to match the experience on such a wide scale.  If this effort to “certify real sushi” results in higher quality sushi and Japanese food around the world, then I’m all for it.  It may be difficult to implement but hopefully will be a fun and welcoming, rather than divisive, experience for restaurants who desire an emblem or certificate that shows their efforts to provide a quality Japanese dining experience.

     Are you selling your home this year?  Maybe next year?  Start now and get the home ready for a buyer.  Even better, get your mindset right about what it takes to sell the home.  I read a recent article from Bankrate.com by author Dana Dratch discussing the 10 ‘must-do’ steps to sell your home this year.  The article is an excellent summary of key considerations for sellers (and buyers) who work hard to get their home sold.  But I wanted to go further… to hit a few topics really hard because I think it’s so important.  I sold two homes in 2005 and 2006 respectively.  Some might argue the market was much better at the time, and granted, that may be true.  However, one of the homes took over seven (7) months to sell in a slow market.  I’ve sold another home in the past in a slower market and really believe there are a few things a seller must do to get that home sold.  Let’s dive right in:

1.  Get Real.  Begin from Day 1 to decide what you can realistically live with for your selling price.  It’s probably lower than you are thinking of right now.  You must examine the best case and worst case… what’s the absolute lowest price you will sell for?  If you don’t face reality up front, from the beginning, you will not be in a position to firmly negotiate or accept an offer that will get the house sold. Look at the comparables for your neighborhood and prices per square foot, etc.  Consider pricing your home aggressively toward the lower side as compared to similar homes on the market in your area.  It doesn’t matter what your neighbors think… it’s your home, your life and your future!

2.  Believe.  But be patient.  Never give up, nor give in to losing faith.  Your home will sell, it’s just a matter of the right buyer at the right time.  You must believe and continue keeping the home in “selling condition” throughout the process.  It takes stamina and a great deal of patience.  Hang in there… the end is worth it.

3.  Neatness Counts. Like crazy.  Selling a home is not easy… no kidding right?  But many people are not prepared for a lengthy time with their home on the market.  While you are being patient and believing… you must keep the house impeccably clean at all times.  Not easy to do, especially with children.  But if a Realtor calls at 7:00 am to show your house two hours later?  You do what it takes to let them show it.  Our last home was sold to a buyer whose agent called at 7:00 pm on a friday night, while I was heading in to a restaurant (selling By Owner).  Dinner’s off… home we went.  Buyer showed up and loved the house, ultimately completing the deal.  Do ‘ya really want to sell? Do ‘ya?  Conversely, I jumped through hoops one time to show the home when I was 45 minutes across town shopping. The agent and buyers swung through the home in 15 minutes, pointing out everything they didn’t like, with no apologies.  Pride swallowed, I wished them well.

4.  Meet the buyer MORE than halfway.  That’s right… give the BUYER the advantage, at least psychologically.  Why?  Because if you really want to sell your house, you must decide that you will do almost anything, within the limits of what is acceptable to you, to get the home sold.  For one of our homes, it was decided up front that anything the buyer wanted would be considered in order to sell the home. For our buyer, that made all the difference.  You want the curtains?  You’ve got them.  You like the picture cabinet on the wall that we found on sale and haven’t seen since?  You’ve got it.  You want us to paint the pantry?  You’ve got it.  Do not get hung up on details and sentiment.  You are selling the home… in a few years you won’t remember the details, but you will remember that you sold the home and moved on with your life.

 5. Presentation is a biggie.  Inside AND outside. 

• Outside: If your landscaping is not appealing, then DO something to improve it.  When prospective buyers drive around neighborhoods, the outside of your home is the first impression they make.  Does your home need paint?  Loose shutters?  Dirty windows?  The manner in which a seller takes care of the outside speaks volumes about pride of ownership and what the inside may look like.  If you want to catch a fish… the bait must be something they like!
• Inside:  We’ll assume you are keeping the inside clean and clutter-free as much as possible.  In some markets professionals are hired to “stage a home”.  That’s great if you can afford it, but if not- you can do the same thing yourself.  A few plants, a few decorative items, a few pictures and stay as NEUTRAL as possible.  Why?  Because many buyers want to “make the home their own.”  It’s a lot easier to do with a neutral decor and layout.  We once saw a home we loved, but upstairs every room and carpet was a different color.  No go.  Too much work and too little time to fix.  If you have a kaleidoscope decor, consider neutralizing it with a little paint.

The Complete Idiot’s Guide to Staging your Home to Sell

6.  Unique features of your home:  Many times we have cute, unique and original features, colors and “stuff” that we really love about our homes. But that’s you.  That’s not necessarily your buyer!  Every time you do something to your home, you need to be aware that you may be “excluding” a percentage of potential buyers.  A house down the street from us sat on the market for over two years.  Why?  Because they had a pool.  Not so bad, except their backyard was… well, all pool and no backyard.  They effectively excluded any potential buyer that wanted a backyard, or didn’t want a pool becuase it was all pool, in a region where pools were the exception.  It may work in a market where pools are common, but you are still drawing a line in the sand for what a potential buyer may want.

7.  No Surprises!  Do not think that keeping a problem hidden will help you sell the home.  If it’s a problem while you lived in it, it’s probably going to be a problem for a buyer.  Do you want the burden of worrying about that after the home is sold?  Is it something a good home inspector will catch during the sales process after you think you have a solid contract?  If in doubt… fix it up front.  Buyers want a clean home, a clean contract and a clean sale.  Do what it takes to resolve problems before hand.  If there is something that you can’t resolve, then get a home inspection up front yourself… identify the issues, and find out what it will cost for a buyer to fix.  Then you can clearly spell it out in the disclosure with a plan of action, whether that be negotiation on price or other incentives.  Maybe it’s not an issue at all… a home inspection that you conduct first will help identify that.

8.  Get creative!  We sold a home with a carpet that was permanently stained in the corner.  Otherwise it looked great.  Right up front we stated an incentive for a carpet allowance for the entire room.  For another home the carpets were pretty worn.  Rather than replace the carpet ourselves, we provided a generous incentive for a prospective buyer to install the carpet of their choosing.  Buyers often love that flexibility, especially if $$$ comes with it.  But if it detracts from the house as a whole, consider getting creative and fixing it before the home is on the market!

9.  Agents:  Interviewing is a great idea.  But go one step further… find out the names of previous sellers as references and ask their opinion.  If the agent or broker won’t volunteer that information, then ask the agent to have a previous seller call if possible. But all the research in the world won’t mean you and the agent will succeed in your real estate relationship.  If you’re not satisfied after the initial contract, then go somewhere else.  Be firm with your agent, and solicit feedback every time the home is shown. 

10.  Selling By Owner?  Re-think it.  If you’re sure, then go all out!  Make sure you know the laws and regulations you must comply with.  You can do this… but it takes vigilance and aggressive marketing.  By Owner sellers are at a disadvantage in most markets simply because of exposure.  Many agents won’t even show a By Owner home.  Many other agents will solicit your business and tell you what they can do for you.  Listen politely and take their information…. you may want it later, or they may bring you a buyer.   I had one agent freely offer comparable information and valuable recommendations, all on the possibility of getting our business.  He was sincere and helpful, and although he never became our agent, I later thanked him for his approach.   We succeeded in selling By Owner by paying a company to place our home on the local Multiple Listing Service.  Many agents called not even realizing it was a By Owner home.  We also stated clearly that Agents were welcomed, with half the traditional agent fees going to the successful buyer’s agent.  Finally, we put a nice big custom-designed sign in the yard with tasteful colors, gold stars and our phone number.  Our buyer saw our home on their own, and then brought their agent.  Don’t use the dinky red and white ‘For Sale’ signs. Those are for garage sales and curbside items… your home is a treasure! Treat it as such. 

     There’s probably a lot more… you can think of them because it’s your home!  Let me know what other ideas you think should be considered.  In my view, we do what it takes to get the house sold… don’t get hung up on the process, keep things positive.  Negotiate a successful outcome at every turn… tell your agent, and theirs, that you want the buyer to have a great experience and your home is a wonderful place to live.  Why are you moving?  Oh… you already have an answer for that right? (Hint: Make sure it’s a positive answer!)

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I thought the Congress might move faster with credit card regulation, but it appears all they may have is a new “Disclosure” bill aimed at requiring credit card companies to spell out terms in a much clearer fashion, as well as provide “helpful” counseling phone numbers.  Reuters reporter John Poirier is reporting via Yahoo that the Democrats have initiated new legislation for a disclosure bill  that will definitely make these companies practices more transparent.  Yet is that all there is?  If so, that’s not enough!  Consumers want greater protections from companies that yank up interest rates at the slightest whim and effectively prey upon people using exhorbitant fees and charges to justify “risk”.   I already harped on the issue this week, but I hope the entire Congress makes greater progress with this issue, as well as reform by the companies themselves.

There’s some terrific content and insight at the 91st Carnival of Personal Finance hosted by The Sun’s Financial Diary.  I continue to be amazed at the diversity of topics and information presented.  Invariably I find something that discusses a recent concern or interest.  Even some topics a little beyond my expectations… but that’s what makes blogging such an effective medium.  Some interesting posts on financial planning, and planners.  But what really is a financial planner?  I have noticed that a lot of personal finance readers really don’t understand the difference between a real Financial Planner and someone who is a broker, financial advisor, financial consultant, etc.  Some people think a Certified Financial Planner is a designation you can send for in the mail… without much educational background.  Nothing could be further from the truth!   I think the problem is that so many institutional firms are employing “financial whatever” people to target the demographic markets and troll for business.  Unfortunately, those who have taken the time and effort in both education and years of training to attain Certified Financial Planner designation are competing against those large firms for business, with an unwary public being confused, and sometimes hurt financially, in the process.  Folks, if someone is trying to sell you a product instead of speaking objectively about your financial concerns and how they can help you attain your goals… then you are probably not speaking with a real Financial Planner.   Real Financial Planners are trained in far more than simple investing and managing money.  They have education and experience with many other issues such as taxation, estate planning, family finanicial matters, budgeting, retirement and even real estate considerations.  If you’re in doubt about who you are talking with, ask about their credentials and designations… ask about their education… ask about the Code of Ethics they adhere too.   Fee-only Financial Planning from a designated CFP is probably about as close as you can get to objective advice.  Getting that advice from someone or a some company who is in business to charge fees and commissions to clients probably involves competing priorities.  Not always, but if someone makes their living by selling things to you, how strongly will they encourage you to buy something from a different firm if that’s what fits?   Do you like feeling “tied” to one institution or company?  I don’t… I would rather get good advice to help make timely decisions… and then receive recommendations about options.  I don’t want to have to buy a stock or fund from a financial “whatever” person I’m talking to- I should be able to do that almost anywhere, but receive solid, objective advice before doing so.  I think it’s so important do a little background research before you put your money on the table…. Financial Planning is a comprehensive discipline and you should have someone with comprehensive experience giving advice.  With that in mind, to find a Certified Financial Planner in your area that meets your needs, see the Financial Planning Association’s search tool.

Are credit card fees and interest rates an increasing, but unknown financial risk for consumers?  You wouldn’t normally think of risk in this way, but if credit card industry practices are closely examined we carry a lot more risk around in our wallets than we realize.  At least with investing, the rules and regulations are pretty clear and you generally know where you stand when you take on the risk.  But with credit cards?  It’s a game of roulette that we play according to an indecipherable rule book, and credit card companies that can change the rules almost any time they please.  For more and more consumers, those rules are taking a heavy (and unfair) toll on personal finance and indebtedness.  Bob Sullivan of MSNBC’s The Red Tape Chronicles has written an excellent article titled Credit Card Companies’ Change of Heart in which he examines how recent Congressional investigation may have prompted several credit card companies to quickly change what many view as unbridled predatory lending policies.  I won’t reiterate some of the egregious examples by credit card companies as described by Mr. Sullivan’s article, but suffice it to say I learned a few things I was not aware of.  Some of the really interesting insight was provided by other people commenting on his article.  In those comments, people have provided real examples of how they were hit hard by the credit card companies for late payments, universal default and even surprising increases to card rates with little explanation.  There were also comments on personal responsibility- reminding others that “we choose to use the cards” and no one forces us to take on that debt.  True, however when one uses credit cards or borrows money in this manner, there is a reasonable expectation of being treated fairly without the lender being able to change rates, fees or credit card agreements on a whim.  I think these issues will become increasingly visible in the months and years ahead, maybe leading to a welcome overhaul of regulatory practices.  Bank and credit card company policies are fiercly driven to extract fees and charges from consumers at every turn. Personally, enough is enough and I’m going to work harder to pay down the debt I do carry, while resolving to use my cards less frequently.  I’ve always taken “financial pride” in using my credit cards wisely, maintaining good standing and paying down debt efficiently.  Although I have not been treated unfairly with the debt I do carry, the more I read the more I realize my credit card debt is a ticking time bomb awaiting change or modification by credit card fee-creation teams whenever they choose.  Even paying down debt involves risk of having your rates increased-  when a consumer is worried that paying down a debt too fast will incur an increased credit card rate, then something is wrong!  For me, the word risk has taken on new meaning when I consider the potential fees and charges I might be levied with by my credit card companies… these fees are far more excessive than management, administrative and brokerage fees for mutual funds and stocks.  Take a look at your own debt profile and the revloving or secured credit cards you carry… read the fine print and you too may see risk beyond mere debt. You know what?  I think I will write the word RISK in bright red letters across the top of my credit cards- the next time I pull out the card for a quick purchase I’ll think twice, and maybe use cash instead.

** Update:  Long position in eBay was closed in early 2008 after company dynamics and policies changed.  Our current view is neutral yet may change again in the future if the company fundamentals deteriorate further, or are convincing enough to warrant further investment.**

Right upfront, I own eBay stock.  Why?  Maybe because I didn’t buy it back in 1998 when I thought it was such a great company…   I remember investing in everything BUT eBay back then.  More to the point, why did I buy eBay a few months ago?  Because I think the last six months have presented an excellent buying opportunity on the stock for the long-term.  There are lots of folks trading the stock and making a pretty good living, but I really think this is a terrific investment for the long portfolio- at least at present valuation levels or lower.  If the market were to correct severely in the near-term, I might look at additional buying opportunties as well.  Why?  Because eBay has been around long enough to establish a rare global brand with few competitors to really challenge it. 

Vishesh Kumar from the Street.com has written a balanced review titled eBay a Haven in Hard Times with a focus on valuation, competitors, challenges and future growth, and I won’t rehash that here.  From my perspective, the challenges to eBay are more about what it does or does not do well as a company.   There has been lots of aggravation by stalwart sellers over changes to eBay’s listing forms, as well as fee increases that some business models are challenged to absorb.  I have never personally sold a single item on eBay, so my impressions are from reading media and user comments.  But I have been an eBay auction buyer for over 8 years, without a single real complaint.  All of my experiences as an eBay buyer have been positive, and I’m a very careful shopper.  My concerns?  If anything, I believe eBay has underestimated the “user experience” impact of the changes it makes to the site over time.  Over the past couple of years, I have found it more and more difficult to find something I am looking for.  There is so much garbage that somehow relates to what I’m looking for that I can’t separate the trash from the treasure.  After a while it all begins to look like trash and I simply give up- there’s simply “too much” to sort through.  I think that is the greatest risk to eBay’s business model… not keeping it simple, clean and effective for the user.  It shouldn’t take a PhD to figure out how to find something you want to buy, especially from the company that practically invented the online auction experience.  To eBay’s credit, they have tried to separate the real auctions from the eBay ‘Stores’.  It’s still not as usable as I would like however.  

Yet with all the challenges, eBay pushes on… sellers sell products and buyers buy them.  As Vishesh Kumar points out, eBay should do well in harder economic times.  If the economy really goes south, isn’t that where you see more garage sales, advertisements, people trying to get rid of stuff?  At the same time, more prospective buyers are trying to cut costs and looking for ways to do that.  eBay fits the mold for me, in good times and bad.  I think the company can work through the issues facing them and continue to grow.  In 10-20 years they will either be an amazing growth story, or an amazing story of demise.  I believe in the growth story…   Oh, one other thing.  One of these days I think eBay will start paying a dividend.  It may be two, five or ten years down the road, but if they’re going to take their place among the corporate giants they need to remember investors, small and large.  There’s a whole bunch of folks that prefer and depend upon dividend stocks, and I think companies that pay dividends will become increasingly important in the years ahead.  Most of my portfolio includes dividend stocks…  eBay is the exception.   I’m hoping it becomes exceptional.